Chapter 17, Problem 1ES

To determine

To calculate: The yearly depreciation using straight-line depreciation when total cost is $\$7200$, salvage value is $\$300$ and expected life is 3 years.

Answer to Problem 1ES

Solution:

The yearly depreciation is $\$2,300$.

Explanation of Solution

Given Information:

The provided total cost, salvage value and expected life is $\$7200$, $\$300$ and 3 years respectively.

Formula used:

The depreciable value is calculated as,

$\text{Depreciable value }=\text{ Total value}-\text{Salvage value}.$

And the yearly depreciation is calculated by the formula,

$\text{Yearly depreciation = }\frac{\text{depreciable value}}{\text{number of years of expected life}}$.

Calculation:

The total cost is $\$7200$ and salvage value is $\$300$.

First calculate the depreciable value as,

$\begin{array}{c}\text{Depreciable value }=\text{ Total value}-\text{Salvage value}.\\ =\$7200-\$300\\ =\$6900\end{array}$

Now calculate the yearly depreciation as,

$\begin{array}{c}\text{Yearly depreciation }=\frac{\text{depreciable value}}{\text{number of years of expected life}}\\ =\frac{\$6900}{3}\\ =\text{ \$2,300}\end{array}$

Hence, the yearly depreciation is $\$2,300$.